Weekly Report – August 3, 2015

Dear Members:

In light of Los Angeles City Hall’s elevated focus on ways in which the public sector can do a better job of helping foster economic and job growth in L.A., I wanted to use this weekly to help gather ideas and/or best practices from you, on ways in which policymakers, academia and the private sector, can work together to help fix the “Middle-Skills” gap in the region?

Thank you in advance for any insights you can provide as we assess this growing problem.


In 2014 a report called Bridge the Gap: Rebuilding America’s Middle Skills (Harvard Business School, Accenture and Burning Glass) was released to highlight a growing anomaly – millions of aspiring workers remain unemployed and underemployed, while employers across industries and regions find it hard to fill open middle-skilled positions.

Middle-skilled jobs – those that require more education and training than a high school diploma but less than a four-year college degree (machinists, registered nurses, technical salespeople and computer technicians) – consistently fail to clear.

Currently in the United States about 69 million people work in middle-skills jobs, representing roughly 48 percent of the labor force. At the same time almost three million jobs are unfilled because of an absence of vocational skills – “middle skills.”

Labor market experts estimate that as many as 25 million, or 47 percent, of all new job openings from 2010 to 2020 will fall into the middle-skills range.

Full report: http://www.hbs.edu/competitiveness/Documents/bridge-the-gap.pdf

Historical Perspective

For most of the past century, people obtained marketable skills and achieved wage growth in one of two ways. The first was on the job. By promoting from within, firms enabled workers to progress to higher-level occupations. Unions negotiated career ladders that were linked to skills and seniority, and they joined employers at an occupation or industry level to host apprenticeship and other training programs. That system ensured an adequate flow of new talent equipped with state-of-the-art skills.

But as unions declined, so did apprenticeships, other union-employer training programs, and promotion from within. (Only 12 percent of the total U.S. workforce (down from 20.1 percent in 1983) and 7 percent of the private-sector workforce is now unionized.) At the same time, the kinds of skills needed by employers changed from incremental new ones that can easily be learned on the job to those that require advanced technical and behavioral skills (in problem solving, communication, teamwork, and leadership) that existing production and employment paradigms lacked.

The second path to skills acquisition was through college. Young people were told that the key to the American dream was to play by the rules and major in a field that suited your interests and talents. But demand for people with liberal arts degrees has dropped sharply. Only 15% of U.S. college graduates major in science, technology, engineering, or math—a percentage that has remained constant for two decades even as demand for these skills has grown.

Consequently, the capacity of the U.S. system to nurture mid-level skills is in decline, just as a shift to flatter, team-based structures is increasing the need for them and automation is reducing the demand for less-skilled workers.

Global Pressure

In Daniel Alpert’s new book The Age of Oversupply: Overcoming the Greatest Challenge to the Global Economy, he argues that America and the global economy are struggling with an over supply of labor productive capacity and capital. He sees too many people and too many dollars chasing after insufficient work and investment opportunities. Today the world has a market labor force of roughly 3 billion people and nearly half live in China, India and the former Soviet Union. As more people look for work the price of labor will go down.

News article on this issue written by Daniel: http://www.pbs.org/newshour/rundown/a-supply-side-nightmare-scenario/

United States

Accenture conducted a companion survey in February 2014 of more than 800 human resources executives. It discovered that 56 percent of respondents found middle-skills jobs hard to fill, with finance and insurance (68 percent) and healthcare (54 percent) companies experiencing the greatest challenges. Fully 69 percent of the overall sample and over 70 percent of the largest companies (those with revenues greater than $2 billion) indicated that their inability to attract and retain middle-skills talent frequently affected their performance. Over one-third of respondents believed that inadequate availability of middle-skilled workers had undermined their productivity, with manufacturing (47 percent) and Healthcare (35 percent) the hardest hit.

Companies in the U.S. can expect to feel the pinch even more severely in the future as more than 76 million baby boomers age, and

their current labor participation rate falls from 80 percent to below 40 percent by 2022, typical of older age groups. By 2020 L.A.’s percentage of 65 year old plus population will go from 6 percent to 12 percent of the overall population. How do we transition them into new careers?  Coalition member Sherry Lansing has great ideas on this: http://encorps.org/

Trends – Is the U.S. Turning into a Nation of Gig Workers?

A recent Wall Street Journal article shared data that showed that far from turning into a nation of gig workers, Americans are becoming slightly less likely to be self-employed, and less prone to hold multiple jobs. Official government data shows around 95% of those who report having jobs are accounted for on the formal payroll of U.S. employers, little changed from a decade ago.

If Uber and its ilk were fundamentally undermining the relationship workers have with employers, that shift would be showing up in at least some of the key economic indicators. Hundreds of thousands of Americans, or even a few million, may have dabbled in the gig economy, but in the context of the 157 million-strong U.S. labor force, the trend remains marginal. “It could be companies like Lyft and Uber look terribly important by their capital market valuation, but the actual economic activity they’re responsible for might not be all that great,” said Gary Burtless, a labor market economist at the centrist Brookings Institution.

Many workers cobbling a living from tech platforms in the gig economy should be classified as self-employed. But the share of Americans who are self-employed and unincorporated has slowly declined over the past decade, to about 6.5 percent of workers today, down from as high as 7.7 percent in 2005 and as high as 8.5 percent in the mid-1990s, according to Labor Department figures.

McKinsey estimated that less than 1 percent of the U.S. working-age population fell into this category, including some people who already work a part- or full-time job. Some workers might have a primary job and do some TaskRabbit work on the weekend for extra cash, or sell artisanal greeting cards on Etsy as a hobby. But the share of people who hold multiple jobs is also in decline—only 4.8 percent of workers do, down from 5.5 percent in 2005 and 6.3 percent in 1995.

Alternate definitions seeking to measure the gig economy have produced a range of estimates. The Government Accountability Office recently estimated the “contingent workforce” makes up about 8 percent of the employed U.S. workforce, using a definition that includes agency temps and on-call workers.

The Labor Department recently issued guidance aimed at cracking down on employers who misclassify their employees as subcontractors. But David Weil, the administrator of the department’s Wage and Hour Division, said that the guidance is largely aimed at traditional employers, such as in the construction and hospitality sectors.

Economists note that regular work and irregular work have always coexisted; some are skeptical of whether gigs arranged via a smartphone are truly novel.

The L.A. Region

The cumulative effects of all these trends are fully apparent in L.A. On any given day in the region there are approximately 138,000 job openings, while at the same time 500,000 residents are unemployed and looking for a job.

This is part of an overall trend in a shift toward lower-wage jobs. Between 1990 and 2014, higher-wage jobs declined from 28.1 percent to 27.7 percent of private jobs in the County and middle-class wage jobs declined from 41.3 percent to 29.3 percent and lower-wage jobs increased from 23.2 percent to 32.5 percent.

What many people do not know is that the county and city of L.A. spend, cumulatively, more than $100 million on an annual basis of federal, state and local dollars on the region’s workforce development system.

This system manages a network of service providers – WorkSource Centers and sixteen YouthSource Centers, which are strategically located throughout the region. These centers provide various workforce development services for businesses, job seekers, and youth. Adult and youth centers work in unison with a network of partners, including education/training institutions, chambers of commerce, economic development agencies, businesses, and other government organizations to provide an array of job preparation and training services.

The question is – What Are We Missing?

Should we be doing a better job of linking the region’s economic development activities with  its workforce development programs to ensure a more successful outcome for the region’s economy and labor force?